WILMINGTON, Del. (Reuters) – U.S. video rental chain Movie Gallery Inc (MVGR.PK) has hired the law firm of Sonnenschein Nath & Rosenthal to prepare for a possible bankruptcy filing and is reviewing bids from liquidators to close 800 stores, sources said on Thursday.
John Bicks, a partner at Sonnenschein, is working on the restructuring, according to two sources with direct knowledge of the situation. In Movie Gallery’s 2007 bankruptcy, Bicks represented Sopris Capital Advisors, which ended up as one of the principal owners of the company when it emerged from bankruptcy in 2008.
Bicks was not available for comment.
Movie Gallery is facing pressure on its business from Blockbuster Inc (BBI.N), as well as from Netflix Inc (NFLX.O), which delivers rentals by mail and Internet streaming, and Redbox, a unit of Coinstar Inc (CSTR.O) that runs movie rental kiosks.
Movie Gallery has also asked liquidators for their proposals to run “going out of business sales” at about 800 stores, according to a third source. The source said Great American and Gordon Brothers were likely bidders for that work.
The third source also said the company’s problems have intensified in recent months and it stopped paying rent in the final months of 2009.
A Gordon Brothers spokesman did not immediately respond to requests for comment. A spokesman for Great American declined to comment. Movie Gallery also did not respond for comment
The Wall Street Journal first reported on Thursday that the company was preparing to file for bankruptcy as early as Tuesday of next week.
The company filed for bankruptcy in 2007 and used the opportunity to swap debt for equity and to slim down its number of stores to about 3,300 from 4,200. The company’currently has more than 3,000 stores, according to its web site.
By Tom Hals
(Additional reporting by Emily Chasan, Chelsea Emery and Caroline Humer, editing by Leslie Gevirtz)